Speaking to the Board About Innovation

Barrie Berg, CEO of ?What If! Americas, on what business leaders have to do for innovation to take root.
T
he following is an edited transcript of a speech delivered by Barrie Berg, CEO of ?What If! Americas, to the Board of Directors of one of ?What If!’s client partners on November 14, 2011.
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Today I’d like to share some observations from our client work about what innovation really takes, and how it can deliver growth. I’ve been asked to tell some stories around innovation both from an organizational and from a leadership standpoint, and in particular to set expectations for the innovation journey that your company is about to undertake—as well as to highlight the kinds of things that leaders have to do in order to make innovation happen in an highly operational, results-oriented organization.

The Context for Innovation

I think it’s important to start with a bit of context for this new, more ambitious corporate focus on innovation. When I started my career, GE was the corporate icon. It was all about Jack Welch as the alpha CEO, management-by-objective, companies with scale, brands with market (and pricing) power, and six-sigma discipline across the enterprise—to deliver both revenue and margin enhancements in a fairly controlled way. Back in those days, innovation was a functional discipline, the purview of the R&D and marketing functions. And it was pretty well accepted—and, of course, endorsed by investment bankers and management consultants (I was one of them)—that breakthrough innovation could only be gained through acquisition.

Today, I think we would all agree that a lot of things have changed! The consumer market and the competitive frame are incredibly challenging. It is quite simply impossible to deliver against shareholders’ growth expectations while playing by those old rules. Scale, while it still delivers a lot of things, can these days also work against you. Nimble small players are able to enter and disrupt. Established brands, while still incredibly powerful, have to do more than message to maintain their franchise. In our increasingly transparent culture, it’s what brands do, not just what they say. And no matter what the market share, price increases are hard to take in such highly volatile and competitive market conditions. The pressure is more likely to be moving in the other direction!

In this new environment, innovation is no longer just a functional discipline. And traditional organizations no longer accept the idea that they can't do innovation themselves. Now, it's innovation with a capital I. The corporate icons today are Apple and Silicon Valley. The most admired business leaders are Tony Hsieh of Zappos and Howard Schultz of Starbucks. Just for perspective, when I was in business school, innovation was buried in the R&D functional department. Now it's the number-one strategy course in the curriculum.

Quite simply, conditions have changed; and corporate growth expectations can no longer be met by what some companies call the “momentum case.” Today there is a real imperative to use innovation to drive growth. And it’s not just a business imperative—it’s an enterprise-wide organizational imperative, from leaders on down.

Everyone agrees that innovation offers promise. The question is how to unlock it.

Innovation: A Movement, Not a Process

Our point of view is that innovation is a human and behavioral discipline. And while process may anchor innovation, alone it is not enough. Innovation is fueled by people, by their experience and energy, and looks much more like a movement when you see it in action.

Now, I am an MBA with 20 years of experience as a management consultant, so I respect process. And it clearly has a role to play. But what we find at ?What If! is that in initiating an effort to raise innovation levels, many companies start in the wrong place. They start by putting new or improved “innovation” processes in place: the “funnel” or the “stage/gate process”. They adopt a six sigma sort of engineering mentality, a belief that the perfect process will yield the desired outcome.

This classic innovation process deals much more with the reductive side of innovation—screening out ideas, green-lighting projects, reviewing investment cases. In our experience that’s actually the easy part for most high-performance organizations to get right.

Instead the real challenges are on the expansive side of innovation: getting promising ideas to put through that funnel, protecting those ideas so they don’t get killed before they can develop, and actually getting the organization geared up to get new things—whether products, experiences, or services—not just captured in a PowerPoint chart but out into the marketplace where someone can buy them.

Our experience is that mindset, behaviors, and momentum are the key to ramping up innovation in an organization—and ultimately play the biggest roles in delivering commercial impact through innovation. Innovation takes a fundamentally different sort of discipline—one that will instill, and reward, a new set of expansive as well as reductive behaviors and make them part of the daily culture of the company.

Creating an Innovation Ecosystem

In our experience, when innovation is up and running in a large corporation it looks like an ecosystem—a fluid and organic community of innovators that cuts across conventional organizational silos and boundaries. This ecosystem is made up of the people doing innovation, the governance of innovation across the enterprise, and a whole host of levers that can be steered and driven to enable innovation—changes to the physical environment, social technology, rewards, and recognition.

The good news is that ramping up innovation doesn’t usually require a massive organization restructuring. But the difficult thing for leaders to sometimes accept is the organic nature of innovation, with lots of moving parts—and the importance of informal structures, such as iconic actions from leaders, in making it work.

Innovation Skills and Behaviors—Across the Organization

As a behavioral discipline, innovation skills need to be used every day even in small ways in order for them to truly take hold. So we generally find that starting small, both in terms of identifying a small group of people and focusing on incremental innovation makes sense in order to establish momentum.

With greater confidence around innovation—the kind that only momentum brings—we find it much easier to spread skills and energy up and down and across the organization. At this point, leaders can drive the process forward by putting supportive structures in place—and through their own personal behaviors and actions. Ultimately, the whole organization will need to support the innovation journey to get all the way there.

Innovation is very hard to get going, and very easy to slow or block. As a leader, it takes a lot of nurturing to protect the energy behind innovation—and to build it into organizational momentum.

Innovation Vs. Creative Chaos

One important note: When we talk about an innovative culture, we don’t mean creative chaos—we mean a culture in which ideas are valued. One of the benefits of a high-performance organization is that those ideas can see impact and get results, which in turn creates the momentum that spurs people onto greater levels of innovation.

I'd like to tell some stories that might help bring these points to life. Four Seasons, the leader in five-star-plus hospitality, is an exemplar when it comes to innovation. They have tremendous operational rigor and clear hierarchy, of course, to deliver such high service day in and day out. But they also have a culture in which ideas are valued. And that is easier said than done in the hotel business, where you have such an incredible diversity of staff and such incredible pressure from exacting customers.

One of the things that the Four Seasons do is to set very clear standards. Once you meet those standards, you’re encouraged to put your personality into the job and really wow the customer. It goes all the way back to recruitment—Four Seasons hires for mindset, and then trains for skill. They have created a very aspirational, role-model-intensive culture, and they get the kind of employee engagement that results in many new ideas, big and small.
Culture can’t be copied: Aligning your organization around an innovation ambition and giving innovative thinkers what they need to thrive can create a competitive advantage.

Orchestration to Make Innovation Happen

In 2008 Hershey's hired its first-ever innovation director, Diane Lorello. They had a funnel that looked perfect on paper but their pipeline was in no way sufficient to meet their growth objectives. Diane’s approach was to start small and controlled. She acquired new insights, identified promising territories, built skills, gained project experience, delivered some wins, and established a common set of tools and a vocabulary around innovation. Most importantly, she established a committed innovation community that generated momentum across the organization.

In just three short years they’ve built a new-product pipeline with an NPV of $1.5 billion—largely through a well-orchestrated effort to build up an innovation toolkit and embed skills and tackle a portfolio of initiatives both near-in and game-changing. So while the results are of incredible even revolutionary impact, the process of getting there was carefully staged and seemingly evolutionary.

Pushing Boundaries by Breaking the Rules

Innovation requires a careful tension between evolution and revolution. Growing a base requires a constant flow of incremental innovation—this is often relatively low-risk and low-investment, with a small scale pilot mentality that streamlines decision-making and implementation. But pushing the boundaries to disruptive growth requires a different sort of space to create controlled experiments and play with a broader set of levers. Not a group of people in an ivory tower reimagining the business, but a team challenged to reframe and rethink from top to bottom.

Unilever, the food and household cleaning giant, has been a client of ?What If! since the early ‘90s. In 2009 the new chairman of Unilever Europe told his UK management team, which was running one of the company’s best performing businesses: "Let's break the rules. Look at all your options, no holds barred.” He gave them the permission to get radical and do a complete rethink of the business. It opened up the space for them to slice and dice innovation challenges in new ways—by consumer segment, competitor, and experience, not just by brand or category. This is a great example of “above and beyond” kind of thinking: Don’t sit back—push harder. Take the strongest part of your business and innovate from a position of strength. This takes real leadership.

Tips for Leaders: What to Avoid

Treating innovation as business-as-usual. What do I mean by that? I mean things like asking an innovation team to do a five-year cash-flow analysis instead of stake-in-the-ground economics. Or trying to have a brainstorm in a corporate conference room during a traditional one-hour meeting slot. It takes an understanding of the level of creativity and uncertainty that is involved in innovation, so as not to impose traditional business language and traditional business process. Organizations need to carve out the time and the bandwidth required to innovate.

The idea that process is enough. As we’ve discussed, innovation is not a going-through-the-motions sort of thing in which process guarantees a great outcome. It takes a huge amount of energy, a creative mindset and innovation behaviors to get out of one’s comfort zone, find unique insights, generate new ideas, build those ideas (generally together!) and get to a “concept”—let alone get from concept to prototype and all the way into the marketplace.

Not linking innovation to strategy. It is critical that innovation activity be linked to business strategy. This probably sounds obvious, but you might be surprised at how often innovation becomes a parallel not core activity for an organization. For innovation to get the right level of attention, funding, and results, an agenda needs to be defined around what innovation really needs to deliver—and resources, full-time resources, dedicated to championing the individual projects all the way to the finish line.

Fishing in the same pond as your competitors. To get real innovation with a capital it often takes a reframe and a reboot of the territories and timeframe that will be the focus for innovation, starting first with principles around market definition, consumer understanding, and territories. In other words, to gain competitive advantage from innovation.

Continually chasing quick wins. We encourage companies to choose “crackable” initiatives, often incremental, upfront to deliver early impact and establish momentum. But on an ongoing basis, innovation of course requires a portfolio strategy like any other investment; as such, the portfolio needs to be balanced across lots of variables, timeframe, geography, level of risk, etc. to deliver a sustainable innovation pipeline.

Taking on too much too soon. It seems counterintuitive, but we often advise our clients to start under the radar and without a lot of organizational hoopla. It is easier to begin with incremental innovation and daily behaviors and without the scrutiny and expectations that accompany dramatic announcements. This often helps builds impact stories and organizational momentum more quickly, and thus builds a foundation that can be expanded and scaled in a shorter overall timeframe.

Speaking in abstract terms. Innovation is something at least some of the people generally want to do and may even do in their personal lives. And while there are some conceptual skills involved, 80 percent of the activity requires very concrete and practical, call it “entrepreneurial” thinking. So instead of using the language of academics, it’s about how leaders make innovation real and relevant (in fact imperative) to their specific businesses, give people explicit permission and time to do it, get initiatives identified and the organization focused, and tell concrete stories as they build momentum and scale it enterprise-wide.

Some Things That Only Leaders Can Do

Giving people the permission to fail. Obviously, you want to try to keep those failures small and correct them quickly. But creating the kind of environment where failure is tolerated can be critical.

Removing the blockers of innovation. This is equally as important as putting the enablers in place. As I’ve said, it is so easy to kill innovation through the kind of gatekeeper functions I mentioned, or through lack of discipline, or by treating it as business-as-usual. Innovation needs the time and the space to flourish.

Creating alignment—between what you're trying to do as a business and your innovation agenda.

Transparency, in terms of the innovation goals set.

Accelerating commercialization. This whole point is about getting impact. One of the things we find is that many organizations only focus on the front end of innovation. And then developing the back end takes too long, or the DNA of ideas gets lost because you don't have the right commercialization process.

Putting in place the enablers of innovation. Changing the reward is a huge help. Many leaders resist doing that. This can be a real enabler to innovation.

Leading for Innovation

Driving an innovation-fueled growth agenda demands both subtle and not-so-subtle changes to the leadership model. Often leadership teams are made up of leaders who are used to driving their agendas independently in a management-by-objective world. Sometimes we describe this as “a team of leaders” vs. a “leadership team.” Innovation requires a truly shared agenda at the leadership level and far more collaboration across functional and geographic silos. It also depends on leaders role modeling expansive, not just reductive behaviors and skills, taking iconic actions that truly set the tone (particularly around the value of ideas), and active storytelling to reinforce that it is only through impact that innovation delivers value.

Commitment to the Journey

There’s no magic formula, of course, and no two organizations’ innovation journeys are exactly the same. Innovation success comes when leaders are willing to move out of their comfort zones and think audaciously about their whole business, pulling various levers—first to create a call-to-action, and then to make it happen on the ground. A spirit of iteration will ensure that your people and your ideas are always building the organizational momentum and innovation pipeline that will deliver ever-greater commercial impact.

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